BRC Asia, which is a-fifth held by HLA, controls a market share between 55-60% market share in Singapore and is a "prime beneficiary" of Singapore's rising construction activity.
In addition, BRC has recently acquired a 55% stake in related company Southern Steel Mesh, which has a 60% market share in Malaysia for welded wire mesh.
"In our view, the acquisition provides BRC with a strategic foothold into Malaysia, diversifies its revenue and enhances its scale in Southeast Asia," says Loh.
In China, HLA controls New York-listed engine maker China Yuchai International, which is deemed to be outperforming its larger peer in China.
See also: RHB's Jaiswal raises target price for SGX to $17.80 on EQDP funds, growing IPO momentum
Loh notes that in the recent 1HFY2025 results season, China Yuchai posted a gross margin of 13.3% and a net profit growth of 52% yoy, substantially higher than Hong Kong-listed Weichai Power.
"It appears that China Yuchai’s better pricing discipline, cost structure, product mix, for example, more high-value heavy-duty engines and marine applications, as well as lower exposure to lower margin segments had led to its outperformance," says Loh.
For China Yuchai, the growing proliferation of data centres is a source of new demand, as the engines produced are used to produce backup power generators.
See also: PhillipCapital's Liu and Chew initiate coverage on SIA Engineering on MRO upcycle
Loh points out that while China Yuchai sold only 1,000 units to its data centre customers out of more than 250,000 units in 1H25, "margins and demand are materially higher and thus could be an interesting growth engine in the near to medium term."
And of course, HLA, with its other key business in manufacturing and selling cement, is seeing a positive impact from Singapore's infrastructure spending.
Besides $19.6 billion in infrastructure spending to build the new airport terminal, MRT lines, hospitals and so on, there's also more new public housing to be built.
Loh's higher target price for HLA, based on a sum-of-the-parts methodology, reflects UOB Kay Hian's own higher target price of $4.69 for BRC Asia.
Loh is valuing the powertrain segment by using a target FY2026 PE multiple of 12x, which is in line with the target multiple used for Weichai Power.
He is keeping the valuation for the building materials segment unchanged for now, with an 8.4x FY2026 EBITDA multiple, which is in line with the company’s global comparable companies.
"In our view, HLA’s valuation multiples appear inexpensive as the company is trading at FY2026 PE and EV/EBITDA of 12.8x and 7.0x respectively," says Loh.
For more stories about where money flows, click here for Capital Section
Stripping out the cash, the PE is even lower at 5.5x, based on his FY2026 earnings estimate, while delivering an ROE of over 12%.
Judging by HLA’s strong free cash flow generation in 1HFY2025, Loh says it may declare a higher dividend than the 5 cents per share that he now projects.
Hong Leong Asia shares traded at $2.45 as at 3.49 pm, up 0.82% thus far today and up 157.9% year to date.
